british american tobacco p.l.c. sustainability report 2011 - Economic performance

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Sustainability Report 2011
EC1 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments
ComponentComment2011 Response
Direct economic value generated
a) RevenuesNet sales plus revenues from financial investments and sales of assets £46,980m
Economic value distributed
b) Operating costsPayments to suppliers, non-strategic investments, royalties and facilitation payments£7,176m
c) Employee wages and benefitsTotal monetary outflows for employees (current payments, not future commitments)£2,649m
d) Payments to providers of capitalAll financial payments made to the providers of the organisation’s capital£3,675m
e) Payments to government £32,194m
f) Community investmentsVoluntary contributions and investment of funds in the broader community (includes donations):Statutory reporting
LBG criteria£13.6m
g) Economic value retained (calculated as Economic value generated less Economic value distributed)Investments, equity release, etc. £1,227.6m
EC2 Financial implications and other risks and opportunities for the organisation’s activities due to climate change

Climate change is one of the greatest global environmental challenges we face today. Addressing its impacts requires governments, businesses and individuals to all take responsibility. Climate change could affect many aspects of our business, including the availability of tobacco leaf, water, energy and other raw materials. There are also potential risks from policy and regulation, these include, but are not limited to, tighter emissions reduction targets at facilities, future costs of carbon, minimum vehicle efficiency standards, increase in vehicle taxes for polluting vehicles, increase in fuel tax and mandatory carbon trading/management schemes.

In addition we believe there are financial implications associated with the risks identified. In 2006, assisted by the consultancy company Environmental Resources Management (ERM), we conducted a study concentrating on key leaf operations, factories and global impact areas such as direct materials supply, business travel and freight. The headline outcome from this study was that climate change could potentially bring physical impacts affecting our companies with annual incremental costs in the range of £50 million to £100 million (annual net revenue of the Group is £14,883 million).

While the long-term risks of climate change create a challenge, they also present an opportunity for us: if we consider a longer timeframe in our decision making, we can take steps today that will set us up to be more competitive in the future.

We also believe there are opportunities in climate change policy and regulation, such as emissions trading, carbon market, tax credits, financial incentives and tradeable allowances. In 2011, we held a stakeholder dialogue session to explore the potential for British American Tobacco to utilise the opportunities of these economic incentives for our business. We are now considering how to incorporate the insights provided during the day into our sustainability and wider business strategies. Part of this process will include assessing the feasibility of the ideas and opportunities identified at the session. You can read more about the key insights from this dialogue, in a summary that can be downloaded below.

PDF: Stakeholder Dialogue Report: Making greenhouse gas emissions pay - Stakeholder Dialogue Report: Making greenhouse gas emissions pay (646 kb) Opens in new window

Our approach is to assess and reduce our environmental impacts by increasing efficiency in our operations and making smarter choices in our supply chain.

To reduce our carbon footprint, we address our energy use, our waste to landfill and our business travel. We are also beginning to explore opportunities for generating and purchasing renewable energy. The challenge is in identifying when, where and what renewable energy sources will become economically viable, so we also intend to research low-carbon fuel options to deploy in the interim. In 2011, we held a stakeholder dialogue session to further explore the opportunities of renewable and low-carbon energy. The participants highlighted that these areas will make an important contribution to meeting future energy needs. We are looking at renewable and low-carbon initiatives in more detail, and intend to incorporate them further into our plans to help us meet our long-term CO2e targets. You can read more about the key insights from this dialogue, in a summary that can be downloaded below.

PDF: Stakeholder Dialogue Report: Renewable and low-carbon energy - Stakeholder Dialogue Report: Renewable and low-carbon energy (367 kb) Opens in new window

EC3 Coverage of the organisation's defined benefit plan obligations

Details of our retirement benefit scheme can be found in our 2011 Annual Report Opens in new window.

EC4 Significant financial assistance received from government

This information is more relevant locally and we do not collate global data on it.

EC5 Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation

This information is more relevant locally and we do not collate global data on it.

EC6 Policy, practices and proportion of spending on locally based suppliers at significant locations of operation

We do not currently measure the proportion of spending on locally based suppliers as this would be an extremely complex calculation. We are a global business and have contracts with global suppliers, although the delivery and invoicing of goods and services often takes place locally, making it difficult to categorise spend as 'global' or 'local'. Our companies use the most appropriate supplier for goods and services, taking into account numerous factors such as meeting our minimum standards, capability and capacity to supply, quality, location, price, speed of delivery and various other criteria, including local regulations and social issues.

EC7 Procedures for local hiring and proportion of senior management hired from the local community at significant locations of operation

Ensuring key succession plans are in place for every senior role remains our long-term objective. This means having at least one local successor ready in the short term and two local successors identified for long-term development. We also aim to achieve a 70:30 ratio of local to expatriate senior managers in each business unit. This gives our companies a valuable balance between local knowledge and international perspective.

Following our recent reorganisations, we have identified some gaps in our succession plans for a number of important roles. To tackle this, the Group launched a global recruitment drive in 2011, focusing on senior management positions. This will continue in 2012.

For further details of our succession management including data on our succession coverage and local to expatriate management balance, please see the people and culture section.

We are committed to providing equal opportunities to each prospective and current employee. Our Group Employment Principles state that we will not discriminate in hiring, promotion or retirement decisions on the grounds of race, colour, gender, age, social class, religion, smoking habits, sexual orientation, politics or disability. Rather, we match the requirements of the job to the ability and potential of the individual. You can read a full version of our Employment Principles at principles Opens in new window.

EC8 Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in-kind, or pro bono engagement

This information is more relevant locally and we do not collate global data on it.

EC9 Understanding and describing significant indirect economic impacts, including the extent of impacts

Our companies commission economic impact studies on an ad hoc basis to meet local business needs.

In 2011, three new studies and one update on a 2010 study were commissioned by our company in Poland.

The 2011 update was made to the study known as the ‘Green Book’, which was originally commissioned by our company in Poland in 2010 and carried out by the Polish Employers Organisation on the tobacco sector within the national economy of Poland. This update showed that the tobacco industry generated 9.1 per cent of the annual tax revenue of the Polish state budget in 2009, directly secures 60,000 jobs and indirectly supports a further 500,000 for 120,000 retailers and wholesalers. Poland has the biggest number of cigarette factories in the European Union and the tobacco sector accounts for 36 per cent of the Polish surplus in foreign trade of agriculture products. The share of illegal tobacco products amounts to 15 per cent of the entire market.

In 2011, a follow-up publication to the ‘Green Book’ was also commissioned by British American Tobacco Poland and carried out by the Polish Employers Organisation. This study, known as 'The White Book’ contains an analysis of the impact some proposed tobacco control regulations may have on the Polish economy. The report analyses both the European (especially EU Tobacco Product Directive) and local regulatory trends and provides recommendations on how to shape the law and measures to avoid unintended negative consequences. It also includes recommendations for tackling the illegal tobacco trade.

The Polish Employers Organisation also published another study in 2010 entitled 'Unregistered economy in the sector of excise goods'. This study aims to assess the smuggling and illicit trade of excise goods (fuel, alcohol, tobacco) in Poland. It shows that the Polish state budget lost PLN 6 billion (£1,263 billion) in 2010 due to the illegal trade of fuel, tobacco and alcohol. It also states that one of the reasons behind the growth of this illegal trade is the fiscal policy, where there are sudden and excessive hikes in excise tax.

A third study commissioned by our company in Poland in 2011, was carried out by the Republican Foundation on ‘State's tax policy for the tobacco sector and its economic and social consequences’. The study analyses taxes imposed on the tobacco sector and the impact they might have on legal tobacco consumption, workplaces in the sector and the economy. It gives recommendations on future excise changes.

In 2011, we commissioned independent research by Development Delivery International (DDI) into the impacts of tobacco growing, which comprised a literature review of over 300 published sources on the subject and field research into the circumstances of tobacco and non-tobacco farmers in three contrasting tobacco growing countries.

This literature review concluded that the existing research base was both limited and lacked contextual understanding. No clear evidence to support a causal link between tobacco cultivation and poverty or that tobacco growing necessarily leads to adverse labour or employment outcomes could be found. The literature on environmental risks was equally problematic with the possible exception of deforestation, although the evidence suggested that this is site specific and can be mitigated. It also found that there is no clear evidence that tobacco growing exacerbates poverty; and that there is minimal evidence that it contributes to food insecurity.

The second part of the study took the form of a practical investigation in Bangladesh, Brazil and Uganda looking at whether tobacco cultivation poses a greater hazard to the welfare of poor people in comparison with the cultivation of other available crops. The case study results show that the claims for a direct causal link between tobacco cultivation and poverty do not hold true as a generalisation. It also found that the ability of households to move in and out of tobacco cultivation does not support a picture of entrapment; that tobacco cultivation is seen to be an important and reliable income source that enhances food security and has contributed to increasing farmers’ welfare; and that suitable agronomy support can help mitigate both environmental and health risks, such as green tobacco sickness, associated with tobacco farming.

DDI’s report contributes to the currently limited evidence base in this area and includes detailed on the ground research about the impact of tobacco cultivation on farmers’ livelihoods. The report says that the percentage of the literature reviewed that shows any peer-review or quality assurance process is rather limited and so restricts the evidence base that policy makers can work with.

The report can be downloaded from DDI’s website at Opens in new window

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